Problem 1: Consider two stocks with price processes given by S10 = 21, Si(1) = 0) 1 { 31 for Wi 19 for w2 S2(0) = 25, S2(1) = { 42 for w1 18 for w2 The probabilities for the scenarios are given by P(wi) = P(wa) = 0.5. 1) Compute the weights in the portfolio with minimum risk for the set of two stocks. Does this portfolio involve short selling? 2) Consider an arbitrary portfolio that involves short selling. What can you say about the range of its risk ov? 3) Consider an arbitrary portfolio that does NOT involve short selling. What can you say about the range of its risk oy? Problem 1: Consider two stocks with price processes given by S10 = 21, Si(1) = 0) 1 { 31 for Wi 19 for w2 S2(0) = 25, S2(1) = { 42 for w1 18 for w2 The probabilities for the scenarios are given by P(wi) = P(wa) = 0.5. 1) Compute the weights in the portfolio with minimum risk for the set of two stocks. Does this portfolio involve short selling? 2) Consider an arbitrary portfolio that involves short selling. What can you say about the range of its risk ov? 3) Consider an arbitrary portfolio that does NOT involve short selling. What can you say about the range of its risk oy